The aging population s impact on productivity

WP Abstract As the population grows older, an increasing share of the workforce will be past age Older workers have often been considered less productive than younger ones, raising the issue of whether an aging workforce will also be a less productive one.

The aging population s impact on productivity

Improvements in productivity play a central role in the growth of long-run living standards, and an important aspect The aging population s impact on productivity a society is its ability to innovate and adapt to changing conditions. It is worth remembering that small changes in productivity growth will lead to large improvements in living standards over time.

There has been relatively little research on the impact of a changing age structure on overall economic productivity. There are many ways in which changes in the age distribution can affect productivity.

For example, the performance of certain tasks may differ over the life cycle. There is substantial research on different ages in the psychology literature. But actual productivity is more complicated than the undertaking of simple tasks, and experience, work skills, health status, job turnover, and other more subtle factors also have a major impact on productivity.

The net effect, as best as the committee can judge from the literature, is that there is likely to be little net effect of changes in the age distribution on productivity in the United States over the next two decades.


Productivity growth is commonly measured as the growth of output per unit of input, either per unit of labor input or per unit of all factors combined. Analyses of productivity growth generally separate the determinants of labor productivity growth into those generated by 1 increases in the quantity and quality of inputs combined with labor and 2 technological change, either new or improved products or improved processes of production.

The first factor—increases in productivity due to higher inputs—would include the improved education, training, and skill acquisition of labor as well as higher quality and quantity of complementary factors such as capital and resources.

For example, increased levels of education of the workforce improve the quality of labor inputs and thereby increase output per hour worked. Changes in the quantity of inputs would be the first important channel through which an aging population could change productivity. As the workforce ages, it becomes more experienced, and greater experience is generally associated with higher earnings and productivity.

But an aging workforce might also experience deterioration in the relevant skills if job requirements change over time or if people's skills decline. Some believe, for example, that increased penetration of information technologies into the workplace might place older workers at a disadvantage.

This chapter will review below the evidence on how these factors interact in the workplace. The second factor in productivity growth involves ingredients other than increases of inputs. Over the long run, technological advance arises from several channels: For example, the vast improvements in productivity in computation arose from a long line of technological developments, from transistors to improved communications to programmable software.

Innovations in organizational structure and management practices and improved political and legal environments have also fostered significant productivity gains. While technological advance and other changes have played a key role in productivity growth, their rate and direction have varied greatly from decade to decade, and the pattern of change is not well understood.

Studies of productivity growth and technological change emphasize that progress does not typically occur through a grand leap by a single ingenious inventor.

The aging population s impact on productivity

Rather, improvements in products and processes are typically the result of many small and unspectacular steps. They result from the application of basic research and engineering, from learning by doing, and from suggestions by workers on the production line.

Clearly, the processes involved in increasing productivity involve both very local forces, such as the skills of individual workers, and more global trends in new and improved technologies and processes. Moreover, economic studies indicate that the second factor—technological advance—is the major contributor to long-run growth in productivity.

Depending on the time, place, and approach, studies indicate that anywhere from half to virtually all of the growth in output per hour worked or per capita income is due to advances in knowledge, and that the balance is due to increases in capital and other inputs per unit of labor.

Studies include psychometric ones such as ones that measure verbal or quantitative reasoningratings such as those of supervisorsproductivity measures such as in piece rates or baseball scoresand statistical studies at the company level.

Why Productivity Growth is Faltering in Aging Europe and Japan | IMF Blog

Useful surveys are those by Prskawetz and Lindh and Skirbekk On the whole, the literature on individual productivity measures shows great diversity across age, individuals, and measures.

As one of the pioneers in the field, Salthouse found that the relationship between age and cognition varies considerably across different cognitive tests. Many psychometric measures show a clear relationship to age. Verhaegen and Salthouse provide a meta-analysis of cognitive studies p.

They compare the performance of individuals over and under 50 years of age and conclude as follows: Avolio and Waldman examine a series of studies that measure work-related skills using the General Aptitude Test Battery GATB for more than 25, workers from 16 to 74 years old.

They conclude that age accounted for a relatively small percentage of the variance in ability test scores once experience, education, and occupational type were controlled.

Differences in performance across age groups were relatively small until at least age However, unlike the earnings data reviewed below, job experience has little value in predicting the maintenance of abilities over the long run except for complex jobs. Literature using other metrics for individual productivity also shows divergent results by age and metric.

One survey concludes that supervisors' ratings typically do not find any clear systematic relationship between age and productivity. The evidence on productivity as measured by piece rates is mixed.The Impact of Population Aging and Delayed Retirement on Workforce Productivity As the population grows older an increasing share of the workforce will be past age Compared with workers between 25 and 59, the pay premium for older workers is currently between 10 percent and 20 percent of the average wage earned by the younger workers.

That pay premium has been increasing for a decade. There is little evidence the aging workforce has hurt productivity. WP/16/ The Impact of Demographics on Productivity and Inflation in Japan.

The Effect of Population Aging on Economic Growth, the Labor Force and Productivity

by Yihan Liu and Niklas Westelius. IMF Working Papers. describe research in progress by the author(s) and are published. Is Japan’s aging and, more recently, declining population hampering growth and reflation efforts? Exploiting demographic and economic variation in prefectural data between and , we find that aging of the working age population has had a significant negative impact on total factor productivity.

Britain’s productivity crisis risks getting worse because the population is ageing steadily, leaving relatively fewer younger, more dynamic workers who typically innovate more. Unless drastic. One of the important issues raised by the aging society is its impact on productivity, adaptation, and innovation.

Improvements in productivity play a central role in the growth of long-run living standards, and an important aspect of a society is its ability to innovate and adapt to changing conditions.

Aging, Productivity, and Innovation - Aging and the Macroeconomy - NCBI Bookshelf